Description of the event
Haitian Flavors achieved total operating revenue of 24.559 billion yuan (-4.10% YoY), net profit to mother of 5.627 billion yuan (-9.21% YoY), after deducting non-net profit of 5.395 billion yuan (-9.57% YoY). The company's total revenue for 2023Q4 was 5.909 billion yuan (-9.3% YoY), net profit attributable to mother was 1,298 billion yuan (-15.2% YoY), after deducting non-net profit of 1,243 billion yuan (-15.39% YoY).
The company's total revenue for 2024Q1 was 7.694 billion yuan (YoY +10.21%), net profit attributable to mother was 1,919 billion yuan (+11.85% YoY), after deducting non-net profit of 1.86 billion yuan (+13.34% YoY).
Incident comments
Inventory pressure cleared up, and 2024 was lighter-weight. By category, looking at 2023 and the last 2 quarters, soy sauce: 12.637 billion yuan (YoY -8.83%), 2023Q4 (YoY -12.93%), 2024Q1 (YoY +10.06%); seasoning sauce: RMB 2,427 billion (YoY -6.08%), 2023Q4 (-7.4% YoY), 2024Q1 (+6.44%); oyster sauce: RMB 4.251 billion (YoY -3.74%), 2023Q4 (-14.62% YoY), 2024Q1 (YoY +9.63%); others; 3.499 billion yuan (YoY +19.35%), 2023Q4 (YoY +17.84%), and 2024Q1 (YoY +22.10%). The company's performance in all categories and regions improved significantly in 2024Q1 compared to 2023. It can be seen that the company's inventory pressure was fully cleared (in addition, some estimates were also affected by this year's Spring Festival mismatch, and contract liabilities fluctuated). In 2024, the annual revenue growth target continued by 12%. Under the foundation of double-digit growth in Q1, it can be expected to meet the standards throughout the year. Meanwhile, by the end of 2024Q1, the company's total number of dealers had dropped to 6506. It has basically maintained a downward trend over the past year, which is the company's continuous practice of franchising and replacing dealers.
The cost-performance trend affects gross profit margins, and declining costs are expected to support profits. The company's net profit margin for 2023 fell 1.29 pct year on year to 22.91%, gross margin -0.95 pct year on year to 34.74% year on year, and the period expense ratio was +0.81 pct year on year to 7.99% year on year. Detailed changes include: sales expenses ratio (-0.06 pct year over year) and management expenses ratio (+0.42 pct year over year). The company's 2024q1 net interest rate increased 0.37 pct to 24.94% year on year, gross margin was +0.38 pct year on year to 37.31% year on year, and the period expense ratio was +0.11 pct year on year to 8.19% year on year. Detailed changes: sales expenses ratio (+0.27 pct year over year) and management expenses ratio (stable year over year).
Prices for major items all declined year-on-year in 2023, which is expected to be due to cost-effective consumption trends, but raw material costs for some items have entered a downward channel, which is expected to support stable or improved gross margins.
Operating pressure has weakened, and shareholder returns have increased. Currently, the B-side recovery of condiments continues to maintain its gradual characteristics, while the C-side consumption upgrade shows a preference for cost performance (high quality+preferential price). The company has been under heavy performance pressure during the inventory removal phase for more than a year, but it has reached a turning point in 2024Q1. At the same time, cost pressure on raw and auxiliary ingredients for condiments has weakened marginally since the second half of 2023, and it is expected that 2024 will continue to bring about profit improvements. The business plan formulated by the company (revenue of 27.51 billion yuan, profit of 6.23 billion yuan) still adheres to the double-digit growth target. Furthermore, the company's dividend ratio in 2023 increased to 65% compared to about 50% in the past 4 years, and shareholder returns have increased dramatically, and the value is outstanding. The company's net profit for 2024/2025 is estimated to be 63.15/6.828 billion yuan, respectively, 1.14/1.23 yuan for EPS, and 35/32 times for PE, respectively, maintaining a “buy” rating.
Risk warning
1. Risk of slow recovery in demand; 2. Industry competition further exacerbates risks; 3. Risk of changes in consumer consumption habits; 4. Risk that prices of some raw materials will continue to rise, etc.